Old Age and Survivor's Insurance

Services of a nonprofessional fiduciary in connection with liquidation
and distribution of a large amount of assets in the settlement of a
relative's estate, where the executor's appointed legal and investment
counsel performed virtually all services required in setting the estate,
executor's services consisted primarily in consulting with such counsel
and approval of their actions, held not to constitute a "trade or
business" within the meaning of section 211(c) of the Act, and income
derived from such services held excluded from "net earnings from
self-employment" within the meaning of section 211(a).

The claimant, T, was appointed one of four executors of the estate of his
uncle, who died in February 1955 leaving an estate appraised at over two
million dollars. The bulk of the estate consisted of more than $1,800,000
in stock issued by some 25 corporations. The remaining assets included
over $113,000 in cash, government bonds, two vacant lots, a three-quarter
interest in rental business property, and a half interest in 17 acres of
land containing coal. There were virtually no debts and, after payment of
estate and inheritance taxes amounting to approximately $600,000, there
remained about $1,400,000 in the estate.

The net assets were disposed of by a will which named T and the three
other individuals as co-executors. Under the will, cash bequests were made
to a library and to certain colleges, and the remaining assets were to be
distributed to abut 38 named beneficiaries, including T and his
co-executors.

The will empowered the executors of the estate to distribute the assets,
to sell the stock, bonds, and real estate, to sell or lease the coal
lands, and to borrow money. Almost immediately after their appointment,
the executors retained legal and investment counsel to assist them with
the administration of the estate. Thereafter, both legal and investment
counsel performed virtually all the work of settling the estate, including
the obtaining of appraisals of estate assets, selling the stock,
distribution of bequests, and management of all tax matters. Although all
actions taken on behalf of the estate were subject to the approval of the
executors, they largely accepted the advice given and executed the
documents presented for their signatures by their advisers. T devoted very
little time to settlement of the estate. He consulted periodically with
the attorneys for the executors but his active participation in connection
with such settlement was very limited. The will provided that the four
executors were to be paid as fiduciaries a total of ten percent of the
gross value of the estate. The evidence shows that the executors would be
paid whether or not they personally performed any services for the estate.
T received executor fees of $12,494.28 for 1955, $12,462.26 for 1956, and
$12,842.90 for 1957.

The question to be decided is whether the fees T received in 1955, 1956,
and 1957 as an executor of his uncle's estate may be included in computing
his net earnings from self-employment.

Section 211(a) of the Social Security Act provides that the term "net
earnings from self-employment" means the gross income, as computed under
subtitle A of the Internal Revenue Code of 1954, derived by an individual
from any trade or business carried on by such individual, less the
deductions allowed under that subtitle which are attributable to such
trade or business.

Section 211(c) of the Act provides in pertinent Part:

The term "trade or business" when used in reference to self-employment
income or net earnings from self-employment, shall have the same meaning
as when used in section 162 of the Internal Revenue Code of 1954. * *
*

A professional fiduciary or executor who regularly engages in fiduciary
services and handles a number of estates generally will be found to be
engaged in a trade or business. A nonprofessional fiduciary (for example,
a person who serves as executor or administrator in isolated instances,
and then only as personal representative for the estate of a deceased
friend or relative) generally is not engaged in a trade or business. A
nonprofessional fiduciary who actually carries on a trade or business in
connection with the administration of an estate, such as operating a store
which is part of the estate, may have income includible as net earnings
from self-employment if the trade or business is an asset of the estate
and the executor actively participates in the operation of such trade or
business. In this event only the fees which are compensation for services
in operating the trade or business are includible in computing net
earnings from self-employment.

In certain rare cases there may be a very large estate which is of such
complexity and long duration that its administration requires extensive
management activities on the part of the executor or administrator over a
long period of time. In such instances, where the activities of a
nonprofessional fiduciary are sufficient in scope and duration, they may
constitute the conduct of a trade or business even though the assets of
the estate do not include a trade or business.

In this case, T was a nonprofessional fiduciary who served as one of four
executors of the estate of his uncle; the authority of such executors was
limited to the liquidation and settlement of the estate in accord with the
terms of the will; and management activities in connection therewith were
pertinent to the sale and distribution of assets and winding up the
estate; and the fact that several years were required for such activities
was due to the large amount of assets. Moreover, T and his co-executors
devoted little time to activities in connection with the settlement of the
estate, since their appointed legal and investment counsel performed
practically all the necessary work, and T's participation was limited,
passive, and sporadic. Furthermore, the fees paid to T were established by
the will and bore no relationship to the services he personally
performed.

Accordingly, it is held that T's activities as executor did not
constitute the conduct of a trade or business and, therefore, his fees for
his fiduciary activities are excluded from "net earnings from
self-employment" for social security purposes.

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